The Fed has been aggressively tightening monetary policy through interest rate hikes combined with quantitative easing. This is the most aggressive tightening since Paul “Tiny” Volcker in the early 1980s.But Jay “Rear View Mirror” Powell, Fed Head, has said that he is fine with that because the economy remains strong. Just look at the strong labor market.This is insane.He is looking in the rear view mirror to drive the monetary car!The labor market is a lagging indicator of the economy. He should be looking at the leading indicators which are telling us that we are going into recession.But then Rear View Mirror Powell has twice said that there would be pain to make sure that inflation is contained.So here is the question: Will the weak labor market cause Jay to flinch and stop the tight mo

The inventor of the Kelly Formula was John Kelly. He was an engineer in Bell Labs in New Jersey.At the time, in the 1950’s, Bell Labs was the center of the technology universe. Of course, Bell Labs was where telephony was being driven forward.Bell asked Kelly to come up with a formula that would maximize the amount of data that could go through a copper wire. The more data Bell could push through a copper wire, the more money AT&T would make.So he came up with what we call the Kelly Formula.I’ll come back to the formula in a minute.But Kelly is also famous for one other thing. He was the first person to get a computer to sing! Remember that computers at the time were the size of rooms!You can watch a youtube of the computer singing! Totally amazing to me!Well, it turns out that the fam

Look for copper stocks to move sharply lower in the coming months!So many people, mainly politicians, still think the economy is doing well. Even Fed Head Jumping Jay Powell thinks it is. If that is true then copper should be doing really well.But it’s not.It’s in a bear market.And it is going to go a lot lower.Why?I have been detailing for months the destruction of the house building industry. I told you it would happen months ago and it is happening right now. Home building is the biggest user of copper and home construction will be in the tank for months.The auto industry is the second largest user of copper and it will hit the skids in a minute.As the same time, third world countries are being squeezed by higher interest rates and a strong dollar so they will have to pump out much more

I want to short banks for two main reasons: The flat yield curve cuts their current income They are actually boosting earnings now by bringing back previous loan loss reserves but they will soon have to start adding to reserves. These are two huge factors for the banking sector and will increasingly weigh on the banking sector. They basically sum up the two major income streams for banks.The shape of the yield curve is a proxy for bank profitability. Most of banking profits come from, as they say, borrowing short and lending long.Translated into English that means that they get most of the money they lend from the short end of the yield curve but most of their lending goes to longer maturities.I worked as the treasurer of a Swiss Bank in one of my past lives. My job was to make sure that t

The Recession Will Be Deeper Than You ExpectThe average American and politicians seem to think the economy is fine. Fed Chairman Powell talks about how strong the labor market is to support his contention that the economy is strong.But cracks are appearing in this façade. We just technically went into a recession with two consecutive quarters of negative GDP. Consumer expectations are plunging The housing market is starting to crack But how deep will it be? Will it be 2008 all over again? Or milder or a depression?I’ll give you my opinion another day. But today, I want to focus on what the bond market thinks.I could give the case that the bond market is the smartest market there is. I don’t know if I would win that argument but I could make a good case for it.The chart shows the difference

Big changes coming!I have been outlining since late last year why I believe the US economy will move into recession late this year or early next year. During these last six months I have been pounding the table for: Selling stocks Buying the dollar Selling bonds I’m changing my tune temporarily now and looking for the different trades. The fundamental picture has changed in the last couple of weeks and I need to change my outlook accordingly.So now I want to sell the dollar and buy bonds but still look for a bear market in stocks but with a significant rally coming soon.Let me explain why. What changed?The first thing that changed was the market. We saw extreme movements in stocks, bonds, and the dollar. All moved in dramatic fashion rewarding those who followed my recommendations. But all

I have been highlighting the coming bust in the housing market for these reasons: It is the largest industry in the US Nobody seems to be concerned about it The coming bust will damage the financial sector as well. We are only at the beginning of the housing bust. Other bubbles have burst: Stocks Crypto NFTs And now housing will bust.Why?The chart tells the story. Prices went way beyond their true value over the last year. Plus the Fed has tightened so much that mortgage rates have doubled.These are two shocks to the housing market. Both caused by the Fed.The price rise shock was caused mainly by the Fed’s super loose monetary policy then was turbo charged by the Trump and Biden administrations’ lockdowns then handing out trillions of dollars of welfare, er, help to people. That boosted de

I was hired to coach one of the greatest traders of all time. I sat next to him every day for 18 months. He was uncanny. He would buy a dip in the market and the market would go higher. He would sell a rally in the market and the market would go lower. He would relentlessly make money from short term swings in the market. At the time, I was mainly a long term position trader. My strength was identifying big trends and riding them for big money. But not as much as he was making! Part of the reason he hired me was to help him on the big trends. But he didn’t want to ride the big trend. He wanted to ride the waves within the big trend. In other words, he wanted to swing trade in the direction of the big trend and make even more money! How? He would buy the dip in the big bull market and then

Here's what everybody is thinking.The labor market is really strong. Heck, they just announced 528,000 added to payrolls last Friday! The headline blew people away!But wait a second. Things are not as rosy as they seem.The chart above show the headline number in black bars. But there are also purple bars from the household survey which are very different.They are so different that the Household survey shows two negative months this year.Why the difference and what does it mean?This is from SeekingAlpha.com:"The BLS notes the following differences between the surveys: The household survey includes agricultural workers, self-employed workers whose businesses are unincorporated, unpaid family workers, and private household workers among the employed. These groups are excluded from t

The dollar will remain strong and whip emerging markets and even developed countries. Look for debt defaults across the globe in 2023 as the King Dollar throttles other countries.Here's why: The US economy is the strongest economy in the developed world The Fed is running the tightest monetary policy US interest rates are about the highest in the developed world. Emerging markets no longer are making lots of money from selling raw materials The strong dollar is causing their debt and debt servicing to skyrocket But inflation is causing declining real wages in virtually all countries in the world Combined, these will keep the dollar on the upswing. But the effect of the strong dollar will be dramatic: We will see defaults on some emerging debt as the debt burden accelerates on their do

Weak Housing Means Recession ComingEvery body will tell you that the economy is still strong. Look at the low unemployment rate! Look, there are more jobs than job openings! Look, inflation is skyrocketing because the economy is strong! But our job as investors is to look to the future and see where the economy and the market is going not look to the past like these people. All the factors they are mentioning are lagging indicators of the economy!So what is happening now and how do we take advantage of it?The largest sector of the economy is housing. Where housing goes is basically where the economy goes.A week housing market means that the economy will be weak and a weak economy means that housing will be weak. We have embarked on a vicious cycle that will only end when we reach the botto

The worst of all worldsThe Bank of England raise rate by the biggest amount in 27 years. They did it because they forecast that inflation will hit 13% by the end. They further forecast that the UK economy would slide into a 15 month recession later this year with GDP shrinking 2%.What a surprise!You create massive monetary inflation, raise taxes, increase regulation and then epect prices to remain the same. What planet are these guys on?But now they are trying to undo the damage of their profligate fiscal and monetary policies. Now comes the global recession. Give the Bank of England credit for acknowledging the obvious. The US Fed and the ECB apparently don't think there will be a recession.Here's what is going to happen.I agree with the BOE. They have tough times ahead in the UK. But we

I wrote a famous report in March 2019 predicting a financial crisis and stock bear market one year forward. It happened.We have now set up to have another financial crisis in 2023. Here’s why: • Debt levels at record highs • Record setting zombie companies and even zombie countries • Global central banks are tightening monetary policy with major exception of China • Consumer debt was modest but is now back to highs in everything but mortgages and they are screaming higher.The Fed will raise interest rates and reduce liquidity leading to: • Massive corporate bankruptcies likely next year. Zombie companies will die. • A mortgage crisis next year but not as bad as 2008 • Subprime defaults in auto and revolving credit will hit records next year • We might see some city and potentially even sta

Fed Chairman Jay Powell shocked the market yesterday when he implied that the final rate that the Fed hikes to will be higher than the market was thinking. At the same time, he said that they might slow down the rate of increases.This shocked the market because they believed that the Fed would be finished tightening by March of next year at about 5%. Now they are thinking much higher, perhaps even to 6%.The market actually believes that inflation will start to come down pretty quickly by March 2023 but take a year or so to decline to the Fed’s target of 2%.But Jay is right and the market is wrong, from one perspective.There are several problems: Inflation may come down next year but very little The recession will cause governments to boost transfer payment keeping inflation high The Fed Fu